China Renews Its Southeast Asia Charm Offensive

It's partly my fault as well but when you hear "China" mentioned together with "Southeast Asia," the first thing which comes to many a mind is conflict over the strategically located and (potentially) energy-rich islands in the South China Sea, AKA the Southeast Asia Sea or the West Philippine Sea. It is perhaps with respect to these islands that China's charm offensive most falters in its bid to gain favour among its Southeast Asian neighbours. It is also where the intricacies of Asian political economy are best on display. That is, how do politically-charged territorial disputes colour the economic logic of regional integration?

To be sure, China was very much a driving force behind the ASEAN-China Free Trade of Agreement that came into effect at the start of 2010. (See an older post of mine on the increasingly tangled web of PTAs in our region.) Fresh from the Asian contagion, countries in the region were keen on developing mechanisms that allowed for more regional cooperation to head off similar crises in the future, all the while expanding economic opportunities in Asia that lessen reliance on Western markets. In theory, global rebalancing would be well-served by Asians creating trade deals for Asians by Asians.

While not fully implemented just yet, it is remarkable that China has been able to extend its status as ASEAN's largest trading partner in the wake of ACFTA. Conversely, while it is well-known that the EU and US are China's first and second largest trading partners respectively, ASEAN as its third is still relatively obscure. Alike with the PRC's relations with Japan and Taiwan therefore, China-ASEAN ties are an excellent test of liberalism's key tenet of commercial links lowering the likelihood of military conflict. Or at least one hopes.

Our official news agency, Xinhua, has come out with a recent article reiterating these growing economic ties as evidence of enhanced regional cooperation. As always, the good thing about official news sources is that you are not left in the lurch about whether it is a journalist's interpretations or a government's version of events that constitutes the intended message. From my standpoint, it's thus a case of China wishing to put its multiple South China Sea entanglements aside--and they are legion--to reiterate how much both sides are now benefiting from enhanced trade:

China and its third largest trading partner, the Association of Southeast Asian Nations (ASEAN), have both expressed a similar stance Thursday -- that protecting common interests should be prioritized through deepened cooperation. The message came from an ongoing forum among China and Pan-Beibu Gulf countries [China's term roughly corresponding to the Gulf of Tonkin area] that includes Vietnam, Malaysia, the Philippines, Indonesia, Brunei, Thailand and Singapore under the China-ASEAN cooperation framework.

Hua Jianmin, vice chairman of China's Standing Committee of the National People's Congress, said China-ASEAN cooperation over the past three years played a major role in the world's economic recovery following the global financial and economic crisis, and with the launch of a free trade area on Jan. 1 last year, trade between China and ASEAN had surged. Data shows bilateral trade jumped by almost 36 percent last year compared to a year earlier to exceed 290 billion U.S. dollars, while in the first half of this year, the trade figure amounted to 171 billion U.S. dollars, up 25 percent [my emphasis].

"The close economic cooperation between China and ASEAN has gone along with globalization and regional integration. It accords with the joint benefits of both China and members of ASEAN. It also contributes to the stability and prosperity of the global economy," Hua said at the sixth Pan-Beibu Gulf Economic Cooperation Forum held in Nanning, capital of southwest China's Guangxi Zhuang Autonomous Region.

There's also an investment boom of sorts in progress...

Data shows accumulative bilateral investment between China and ASEAN reached 74 billion U.S. dollars by the end of 2010, with China's direct investment in ASEAN exceeding 10 billion U.S. dollars.

Ma said deepened cooperation among China and the Pan-Beibu Gulf countries will help with addressing the crisis amid the uncertainties in the global economy. It can speed up the economic development of these countries and improve regional competitiveness. It can also promote the integration of ASEAN countries through regional connectivity and create broader market opportunities for both sides.

To be sure, the United States is more than a little envious and cautious about being well and truly overtaken as ASEAN's largest trading partner by China. It has tried to use various spats in the South China Sea as distractions to maintain influence in the region on the cheap, but the bottom line is that trade and investment there will increasingly be predicated on China rather than America. While such may be the case in virtually every other corner of the world, Southeast Asia's geographic proximity to the PRC poses more security-related concerns that have the potential to affect economic relations for better or worse.

It's reassuring though that China sees it fit to mount a charm offensive at this time. Uncle Sam, money talks--and you have precious little of it left.